Construction activity has declined during the second quarter, despite overall UK growth, and contract values are decreasing. Michael Dall discusses the highlights of Barbour ABI’s monthly Economic & Construction Market Review

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The latest figures from the Office for National Statistics (ONS) showed that UK GDP growth in the second quarter of 2017 was 0.3%, following on from the 0.2% growth figure in the first quarter. Comparing this figure with the second quarter last year shows that GDP growth was 1.7%, which is below the five-year average of 2.2% . This shows economic growth is beginning to slow.

The latest GDP figures included 0.5% growth in the service sector but declines in the production sector of 0.4% and the construction sector of 0.9%. In the service sector, retail trade was particularly strong, as were food and beverage service activities. This reinforces evidence that UK consumer confidence and appetite for spending remains.

The second-largest contributor to growth in the service sector was motion picture activities, adding further proof of British consumers’ enthusiastic spending on leisure entertainment. It will be interesting to see whether this continues in the third quarter as summer film “flops” will weigh on film studios’ profits. It should be noted that since the service sector is so dominant in the UK, this has offset declines in production and construction, leading to overall growth in the second quarter.

Other news this month on the UK economy includes:

  • The latest inflation report from the Bank of England forecast investment in the UK would be 20 percentage points lower by 2020 than it had predicted before the Brexit referendum
  • It also noted that the Bank of England had revised its forecast for economic growth in 2017 down from 1.9% to 1.7%
  • A survey by the British Retail Consortium showed that retail sales increased by 1.4% in July as higher food costs led to more spending in that area and less for non-food items
  • The chief executive of Nationwide advocated more caution when lending to head off any potential downturn in economic growth.

The construction sector

The latest figures from the ONS indicate the construction sector in the UK shrank by 0.1% between April and May 2017. Industry output was 0.9% higher this June than June 2016. The main reason for the monthly decrease in output is decline in new work in the private commercial and infrastructure sectors.

New private commercial output shrank by 1.8% over the period, while infrastructure fell by 0.8%.

Over the longer term, private commercial was still 0.1% higher in June 2017 than in June 2016. Similarly, infrastructure was 4.2% higher than a year ago. However, comparing the past three months with the preceding three months, it is clear the level of activity in construction is declining despite the monthly fluctuations (see Construction activity by sector).

According to Barbour ABI data on all contract activity, July witnessed a decline in construction levels, with the value of new contracts awarded standing at £5.4bn, based on a three-month rolling average (see Contracts Awarded). This is a 2.2% decrease from June and a 7.5% decrease down from the value recorded in July 2016. The number of UK construction projects in July decreased by 26.2% on June and was 9% lower than July 2016.

Projects by region

The majority of the contracts awarded in July by value were in London, which accounted for 14% of the UK total. This was followed by the South-east, which also had 14% of contract award value. The next highest region was the North-west, which attracted 12% of the value awarded (see Location of awards awarded in July).

The highest value contract awarded in London in June was the Haslemere Estate redevelopment in Earlsfield, which is set to deliver 128 residential units with associated commercial and retail uses. Valued at an estimated £70m, the development will take place on a current industrial site. In the South-east region, the highest value contract awarded was the Charter Square residential scheme in Staines. This residential-led, mixed-use scheme development has an estimated value of £120m and will provide 260 residential units.

In the North-west, the largest contract awarded was in the medical and healthcare sector for a Nuffield private hospital in Manchester. The development is a new hospital building that will be set across three floors and will have 30 consultation rooms, 60 patient en-suite bedrooms, eight critical care beds, six operating theatres, a diagnostic imaging suite and a rehabilitation gym with physiotherapy inside a wellbeing centre. This scheme is valued at £75m and was awarded to Kier. It is due to start in September 2017 and is expected to be completed in September 2020.

Type of projects

Residential had the highest proportion of contracts awarded by value in July, with 47% of the total (see Contracts awarded). The Staines’ Charter Square scheme was the largest value contract awarded in July. The next highest value residential contract awarded was a 444-unit development called The Packway in Wiltshire. This was valued at £97m and was awarded to Lovell Partnerships. Industrial secured the second-highest share of contracts by type with 15% of the value, with the largest industrial contract awarded at the Oxford Technology Park, a business park in Kidlington that is set to provide more than 40,000m² of commercial floorspace. It is valued at £90m and was awarded to Hill Street Holdings.

Another project of note in the industrial sector in July was the award of the contract to build a Lidl Distribution Centre at the Eurocentral Business Park in Strathclyde. This is further evidence of Lidl’s ongoing expansion, after several other contracts from the firm were awarded in parts of the UK. The project is valued at £60m and the main contractor on the scheme is Winvic Construction.

Ecmr location contracts awarded

Ecmr contracts awarded

Ecmr activity by sector

Spotlight on residential

Activity in the residential sector increased slightly in July, with the total value of projects valued at £2.5bn based on a three month rolling average. This is a 1.4% increase compared with June and 51.3% higher than July 2016.

The number of units associated with residential contracts awarded increased by 2.4% between June and July based on a three-month rolling average, and is 9.4% higher than July 2016. Taken together, this data shows the continued popularity of residential developments in the UK

House prices

The latest house price indices for July from Halifax showed that average house prices are rising at 2.1% annually, down from 2.6% in June. However, there was a fourth consecutive quarterly decline in house prices, indicating an underlying softening in the housing market. The Nationwide reported annual house price rises at 2.9% in July, down from 3.9% in June.

Mortgage approvals

The Bank of England mortgage approval figures demonstrate that while price levels may be moderating, the number of mortgage approvals is increasing. The latest figures show that there were 122,765 mortgage approvals in June, an increase from 121,626 in May.

Emcr resi activity change

Ecmr type projects awarded

Ecmr value contracts by region

Ecmr top 10 key clients

Ecmr top 10 key contractors

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